A BREIF OVERVIEW OF NON-RESIDENT INDIANS
(NRI’S) AND RESTRICTIONS FOR NRI’s UNDER FOREIGN EXCHANGE
MANAGEMENT ACT (FEMA)
By
CS K Vinoth and CS D Hem Senthil Raj
OVERVIEW
Under
the Foreign Exchange Management Act, there are certain restrictions imposed by
the Reserve Bank of India and Government of India in terms of dealing with the
Non-Resident Indians (NRI’s), The exhaustive list of restrictions are given
below for your ready reference.
WHO IS AN NON-RESIDENT INDIAN (NRI)
An Indian Citizen who stays abroad for
employment/carrying on business or vocation outside India or stays abroad under
circumstances indicating an intention for an uncertain duration of stay abroad
is a non-resident. (Persons posted in U.N. Organisations and Officials deputed
abroad by Central/State Governments and Public Sector undertakings on temporary
assignments are also treated as non-residents). Non –Resident foreign citizens
of Indian Origin are treated on par with non-resident Indian Citizens (NRIs)
for the purpose of certain facilities.
Main
categories of NRIs
The following are the main three categories of
NRIs:-
(i) Indian citizens who stay abroad for
employment or for carrying on a business or Vocation or any other purpose in
circumstances indicating an indefinite period of stay abroad.
(ii) Indian citizens working abroad on
assignment with foreign government agencies like United Nations Organisation
(UNO), including its affiliates, International Monetary Fund (IMF), World Bank
etc.
(iii) Officials of Central and State
Government and Public Sector undertaking deputed abroad on temporary
assignments or posted to their offices, including Indian diplomat missions,
abroad.
RESTRICTIONS UNDER FEMA
1.
NRI cannot without prior approval of
RBI, establish in India a branch or a liaison office or a project office or any
other place of business, by whatever name called.
2.
No person resident in India shall borrow in rupees from or lend in rupees to a
NRI without prior approval of RBI.
3.
A company incorporated in India, may borrow in rupees on repatriation or non-repatriation
basis from a NRI, by way of Investment in Non-convertible Debentures (NCD)
subject to the following conditions:
(i)
The issue of NCD is made by public offer.
(ii)
The rate of interest on such NCD does not exceed the prime lending rate of SBI
as on date, on which the resolution approving the issue is passed in the
borrowing company's General Body meeting plus 300 basis points.
(iii)
The period for redemption of such NCD is not less than 3 years.
(iv)
The borrowing company does not and shall not carry on agricultural/plantation/real
estate business/trading in Transferable Development Rights (TDR) or does not
and shall not act as Nidhi or Chit fund company.
(v)
The borrowing company files with the nearest office of RBI not later than 30
days from the date of receipt of remittance for investment in NCD, full details
of the remittances received.
(vi) The borrowing on repatriation
basis, shall be subject to the following additional conditions:
■ the
percentage of NCD issued to NRIs to the total paid up value of each series of
NCD shall not exceed the ceiling prescribed by RBI for foreign direct
investment.
■ the
amount of remittance is received through normal banking
channels or by transfer of funds from NRE/FCNR account.
(vii) The borrowing on non-repatriation
basis, shall be subject to the following additional conditions:
■ The
amount of investment is received either by remittance from outside India,
through normal banking channels, or by transfer from NRE/ NRO/FCNR account.
■ Where
the investment is made from NRSR account, the interest on such NCD shall also
not be repatriable.
BORROWINGS BY A NON-RESIDENT INDIAN
1. Authorized dealer in India, may grant
loan to a NRI, against the security of shares or immovable property provided
that -
(a)
The loan shall be utilized for meeting the borrower's personal requirements or
for his own business purposes.
(b)
The loan shall not be utilized for the business of chit fund/Nidhi Company/
agricultural, plantation/real estate business or construction of farm houses
/trading in TDR.
(c)
The RBI's directives are to be complied with.
(d)
The loan amount, shall not be credited to NRE/FCNR/NRNR accounts.
(e)
The loan amount, shall not be remitted outside India.
(f)
Repayment of loan shall be made from out of remittances from outside India
through normal banking channels or by debit to NRO/NRSR/NRNR/NRE/ FCNR accounts
or out of the sale proceeds.
2. An Authorized dealer or a housing
finance institution, in India may provide housing loan to a NRI, for
acquisition of a residential accommodation subject to the following:
(a)
The quantum of loan, margin money and the period of repayment shall be at par with
those applicable to residents.
(b)
The loan amount, shall not be credited to NRE/FCNR/NRNR account.
(c)
The loan shall be fully secured by equitable mortgage.
(d)
The installment of loan, interest and other charges shall be paid by the
remittance through normal banking channels or out of funds in NRE/FCNR
/NRNR/NRO/NRSR account or out of rental income from the property.
(e)
The rate of interest on the loan shall be in conformity with the directives of
RBI.
3. A body corporate registered in India,
may grant rupee loan to its employee, who is a NRI subject to the following
conditions :
(i)
The loan shall be granted only for personal purposes including purchase of
house property in India.
(ii)
The loan shall be granted in accordance with Lender's staff welfare scheme/
staff Housing loan scheme at par with staff in India.
(iii)
The loan amount is not used for the business of Chit fund/Nidhi Company/
Agricultural or plantation activities or real estate business or construction
of farm houses or trading in TDR. The amount cannot be used for investment in
any company/partnership firm/proprietorship concern or for relending.
(iv)
The lender shall credit the loan amount to the borrowers NRO account.
(v)
The repayment should be made by remittance from outside India or from
NRE/NRO/FCNR account.
4. An Authorized Dealer may permit
continuance of a loan/overdraft granted to a person resident in India, who
subsequently becomes a person resident outside India subject to the following
conditions :
(a)
The Authorized dealer is satisfied about the reasons to continue the loan.
(b)
The period of the loan or overdraft shall not exceed the period originally
fixed.
(c)
Repayment shall be made either through normal banking channels or from
NRE/FCNR/NRNR/NRO/NRSR account.
5.
In case a rupee loan was granted by a person resident in India to another
person resident in India, and the lender subsequently becomes a non-resident,
the repayment should be made by credit to the NRO or NRSR account of the
lender.
6.
Any remittance exceeding USD 1 million from NRO account needs RBI's approval.
INVESTMENTS BY A NON-RESIDENT INDIAN
1.
NRI can invest in a firm or proprietary concern in India on repatriation basis,
only with the approval of RBI.
2.
A NRI may purchase/sell shares or convertible debentures of an Indian Company
through a registered broker on a recognized stock exchange subject to the
following conditions:
(a)
NRI may purchase and sell shares/convertible debentures under “Portfolio Investment Scheme”(PIS) through a branch of an Authorized
dealer.
(b)
The paid up value of shares/convertible debentures of an Indian Company
purchased by each NRI both on
repatriation and non-repatriation basis does
not exceed 5% of the paid up value of shares.
(c)
The aggregate paid-up value of shares/convertible debenture purchased by all
NRIs does not exceed 10% of the paid up
capital of the company, or 10% of
the paid up value of each series of convertible debentures, provided, the
aggregate ceiling can be raised to 24% by passing a special resolution at the
General Meeting.
(d)
The NRI investor takes delivery or gives delivery.
(e)
The payment, for the purchase is made through normal banking channels or out of
funds held in NRE/FCNR account in case of repatriable purchase and from NRE/FCNR/NRO/NRNR/NRSR
account of the NRI in case of non- repatriable purchase.
3. A NRI may purchase shares or
convertible debentures of an Indian Company on non-repatriation basis other
than portfolio scheme subject to the following conditions:
(a)
The company should not be a Chit Fund company/Nidhi Company doing Agricultural,
plantation, real estate construction of farm houses or dealing in TDR.
(b)
The amount of consideration shall be by way of inward remittance through normal
banking channels from abroad or out of funds held in NRE/FCNR/NRO/NRNR account.
(c)
The sale/maturity proceeds shall be credited only to NRSR account where the
purchase consideration was paid out of funds held in NRSR account and to
NRO/NRSR account where the purchase consideration was paid out of
NRE/FCNR/NRO/NRNR account.
(d)
The capital appreciation cannot also be repatriated.
SALE OF IMMOVABLE PROPERTY BY A
NON-RESIDENT INDIAN
1.
A NRI is permitted to sell his immovable property in India and repatriate the
sale proceeds up to USD 1 million per year. However, he should have held the
property for a period of at least 10 years. If immovable property is sold,
amount equivalent to foreign exchange brought in, can be repatriated.
2.
NRI cannot make deposits in companies in India, but only in banks.
3.
Indian Companies can issue commercial paper to NRI on non-repatriation basis
only.
4.
FDI in India is permitted according to the sectoral caps permitted by RBI.
5.
Transfer of shares/convertible debentures from residents to non-residents in
sectors other than financial service sector is subject to the following:
(a)
The activities of the investee company are under automatic route under FDI
policy and transfer does not attract the provisions of SEBI.
(b)
The non-resident shareholding after the transfer, complies with sectoral
limits under FDI policy.
(c)
The price at which the transfer takes place is in accordance with the pricing
guidelines prescribed by SEBI/RBI.
Foreign
Exchange Regulations speak exhaustively on Non-Resident Indians. The above-said
are a few important points relevant to this article.
By
CS D Hem Senthil Raj
CS K Vinoth
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